BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           2 (De La Torre)
          
          Hearing Date:  8/27/2009        Amended: 8/17/2009
          Consultant: Katie Johnson       Policy Vote: Health 6-4   
          Judiciary 3-2
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  AB 2 would establish requirements on health care  
          service plans and health insurers related to individual health  
          insurance application forms, medical underwriting, and notices  
          and disclosures of rights and responsibilities.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2009-10      2010-11       2011-12     Fund
                                                                  
          CDI regulations,                $60          $100 $100 Special*
          question pool maintenance

          DMHC regulations, filings,  $500 - $1,700    $1,000 -  
          $3,400$135Special**
          enforcement, independent
          review contract 

          *Insurance Fund
          **Managed Care Fund
          _________________________________________________________________ 
          ____

          STAFF COMMENTS:  SUSPENSE FILE.
          
          Existing law provides for the regulation of health care service  
          plans by the Department of Managed Health Care (DMHC) and of  
          health insurers by the California Department of Insurance (CDI).

          Existing law prohibits health plans and insurers from engaging  
          in "post-claims" underwriting, defined to mean the rescinding,  
          canceling, or limiting of a plan contract or insurance policy  
          due to the plan's or insurer's failure to complete medical  
          underwriting and resolve all reasonable questions relative to an  
          application for coverage before issuing the contract or policy.  
          For health care service plans regulated by DMHC, the prohibition  










          on post-claims underwriting does not limit a plan's remedies  
          upon a showing of willful misrepresentation.

          DMHC and CDI would need significant resources to comply with  
          these provisions. Costs to promulgate regulations jointly,  
          develop and contract for independent review services, develop  
          standardized application questions, receive and review  
          applications, and to otherwise implement and enforce these  
          provisions would be approximately $100,000 annually for CDI and  
          $1,000,000 - $3,400,000 in start-up costs and $135,000 ongoing  
          for DMHC. It is unknown how many cancellations and rescissions  
          health plans and insurers would pursue annually. In recent  
          years, both DMHC and CDI have taken significant regulatory  
          action to levy penalties on plans and insurers who engaged in  
          unlawful post-claims underwriting. 
          Page 2
          AB 2 (De La Torre)

          This bill would exempt health care service plan contracts for  
          coverage issued under Medi-Cal, the Healthy Families Program,  
          the Access for Infants and Mothers program, the federal Medicare  
          program, and dental plans.

          Specifically, this bill would:

             1)   require DMHC and CDI to jointly establish regulations  
               that set standard information and health history questions  
               that would be used by all health plans and insurers  
               commencing six months after their adoption;
             2)   require individual health plans and insurance  
               applications to be reviewed and approved by DMHC and CDI  
               before they may be used on and after January 1, 2011;
             3)   require health plans and insurers to complete medical  
               underwriting prior to issuing a contract or policy and to  
               adopt and implement written medical underwriting policies  
               and procedures as specified;
             4)   require health plans and insurers to file their medical  
               underwriting policies and procedures with DMHC or CDI on or  
               before January 1, 2011;
             5)   allow an applicant 30 days to review his or her  
               application and correct any errors;
             6)   prohibit a health plan or insurer from rescinding an  
               issued individual health care contract or individual  
               insurance policy, as specified;
             7)   provide that an enrollment or individual policy may be  
               canceled or not renewed due failure to pay the required  










               charge for coverage;
             8)   permit the health plan or insurer to investigate any  
               potential omissions or alleged misrepresented material;
             9)   commencing January 1, 2011, establish independent review  
               processes in DMHC and CDI for the purpose of reviewing  
               proposed rescissions or cancellations of contracts or  
               policies;
             10)            a health plan or insurer must continue to  
               authorize and provide all medically necessary health care  
               services until the effective date of cancellation or  
               rescission;
             11)            require that all health plan and insurer  
               decisions to cancel or rescind a health plan contract or  
               insurance policy be reviewed by the independent review  
               organization unless the enrollee or insured opts out of the  
               independent review process;
             12)            require a health plan or insurer to  
               prominently display information concerning the right of an  
               enrollee or insured to an automatic independent review in  
               the cases where a plan or insurer has decided to pursue  
               cancellation or rescission of a health plan contract or  
               insurance policy;
             13)            require DMHC and CDI to expeditiously review  
               independent review requests and immediately notify the  
               enrollee or subscriber or insured or policyholder, in  
               writing, about the independent review process;
             14)            require the independent review organization to  
               conduct the review as specified;
             15)            require DMHC and CDI on or before January 1,  
               2011, to contract with one or more independent  
               organizations in the state to conduct independent reviews  
               of proposed health plan contract or insurance policy  
               cancellations and rescissions;


          Page 3
          AB 2 (De La Torre)

             16)            require the director of DMHC and the  
               commissioner of CDI to immediately adopt the determination  
               of the independent review organization and to promptly  
               issue a written decision to the parties involved in the  
               review;
             17)            independent review organization decisions may  
               be made available to the public upon request, after DMHC  
               and CDI have removed the names of the parties and complying  










               with applicable privacy laws;
             18)            permit DMHC and CDI to assess an  
               administrative penalty of not less than $5,000 on a health  
               plan or insurer that engages in any conduct that would  
               prolong the independent review process;
             19)            provide that DMHC penalties would be deposited  
               into the Managed Care Administrative Fines and Penalties  
               Fund and that CDI penalties would be deposited in the Major  
               Risk Medical Insurance Fund;
             20)            require DMHC and CDI to perform annual audits  
               of independent review cases;
             21)            require that the costs of the independent  
               review process be borne by the affected health plan or  
               health insurer;
             22)            require that on and after January 1, 2010,  
               every health plan and insurer would annually report to DMHC  
               and CDI, respectively,  the total number of individual  
               health plan contracts and health insurance policies issued,  
               the total number of contracts and policies that the plan or  
               insurer initiated or completed a cancellation or  
               rescission;
             23)            require DMHC and CDI, on or before March 31,  
               2010, and annually thereafter, to publish information filed  
               pursuant to these provisions on their websites.

          AB 1945 (De La Torre) of 2008 was similar to this bill. It was  
          vetoed by the Governor for the following reasons:  
          "Unfortunately, the provisions of this bill will only increase  
          costs and further restrict access for over 2 million  
          Californians that currently obtain coverage in the individual  
          market. My administration proposed comprehensive legislation to  
          address this problem.  In particular, my proposal contained  
          several strong consumer protections that this bill fails to  
          address.  My proposal established a standard application to  
          remove any possibility of plans using different health questions  
          to disadvantage applicants.  This bill does not contain that  
          protection.  My proposal required agents and brokers to sign  
          under penalty of perjury that they had not altered an  
          applicant's answers.  Penalties were levied if they engaged in  
          this unscrupulous behavior. This bill does not contain that  
          protection.  My proposal clearly outlined the rules that plans  
          and insurers had to follow when considering whether to offer a  
          contract to an applicant.  This bill does not contain that  
          protection.  My proposal didn't allow plans to rescind or cancel  
          if a doctor failed to inform a patient of a medical condition.   
          This bill does not contain that protection.  My proposal  










          contained a two-year lookback protection that prevented plans  
          from rescinding or cancelling after two years.  This bill does  
          not contain that protection.  My proposal protected family  
          members and required coverage to be continued without additional  
          underwriting or increase in premiums.  This bill does not  
          contain that protection. This bill was written by the attorneys  
          that stand to benefit from its provisions.  In rushing to  
          protect a right to litigate, the proponents failed to consider  
          the real consumer protections that are needed."